How Goldman Lost $1.3 Billion Of Libyan Funds And Then Almost Made Libya One Of Its Biggest Shareholders

goldman sachs libya

When Libya launched its sovereign wealth fund in 2007, it asked several banks to manage money for it.

Goldman Sachs was one of them.

Between January and June of 2008, the Libyan Sovereign Wealth Fund, controlled by Colonel Gaddafi himself, paid Goldman “1.3 billion for options on a basket of currencies and on six stocks” including Citi, UniCredit SpA, Banco Santander, Allianz, Électricité and energy company Eni SpA, the WSJ reported.

When Lehman Brothers collapsed and credit markets froze in 2008, the Libyan investment with Goldman was virtually wiped out.

According to internal memos seen by the WSJ ,

The underlying securities plunged in value and all of the trades lost money, according to an internal Goldman memo reviewed by the Journal. The memo said the investments were worth just $25.1 million as of February 2010—a decline of 98%.

Obviously the Libyans were furious with the bank. Fund employees said Goldman had misrepresented the investments and traded “without proper authorization.”

Threats against Goldman bankers got so bad that the bank had to hire security for its employees.

In the end, the bank didn’t want its relationship with Libya to go sour — or to frighten other sovereign wealth funds away — so it offered a range of six options for Libya to recoup its money, one of which included making the sovereign wealth fund one of Goldman Sachs’ biggest shareholders.

In May 2009, Goldman proposed that Libya get $5 billion in preferred Goldman shares in return for pumping $3.7 billion into the company… Goldman offered to pay the Libyan Investment Authority between 4% and 9.25% on the shares annually for more than 40 years, which would amount to billions of dollars more.

After four all-day meetings in July 2009, the two sides agreed to a rejiggered deal that would make back Libya losses in 10 years. Such a deal, which also could have left the fund with a Goldman stake, would have needed to be run past the Federal Reserve. That left both Goldman and fund officials worried about its viability.

In the end, however, negotiations, the last of which occurred in June last year, led to no concrete deal.